Government set to freeze energy company taxes on fossil fuels

Chancellor of the Exchequer George Osborne has announced the governmentís intention to implement a provisional four year freeze on fossil fuel taxes levied on energy companies, following persistent calls within the industry for reduced energy costs.

The carbon price floor, was placed onto energy companies back in April last year, with the intention of encouraging suppliers to move away from high carbon resources to lower generating sources such as nuclear and solar energy.

However, it has garnered heavy criticism from utility companies, consumer organisations and even green campaigners alike, who have argued that it is a counterproductive method to encourage low carbon resource usage. Consumers in particular have been severely unhappy about the reality that yet another government levy is being passed onto their bills, following the recent ërolling backí of green levies back in December.

Despite the freeze, it is likely that it will not be sufficient to appease certain industries such as the steel and chemicals, which are heavily reliant on fossil fuel generation to function, and have already identified that they are nearing ëcrisis pointí.

The final details of the freeze are yet to be confirmed, though it is thought that the current tax rate of £18 for each tonne of CO2 produced will stand till at least 2018, with it set to almost double to £30 by 2020.

ëCrisis pointí

Despite the Chancellorís intended freeze going someway to appeasing energy and consumer groups, who have been unhappy about the higher costs of energy that they have had to pay, the new policy is unwelcome news to industries that rely on fossil fuels as their primary source of functioning.

Industries such as the chemicals and steel have previously asked the government to lower the level of taxes that are being placed on them for their energy usage, and is thought that Mr Osborne is against making them exempt from paying green taxes, or lowering their tax obligations in other areas by exempting them from other levies such as the renewable obligations.

The Chancellorís focus seems more with energy and consumer groups, who will be hit by the rise in the value of the tax next year. Government figures have estimated that the tax will add 10% on electricity costs for UK bill payers next year, though the intended freeze will help counteract this by shaving £15 each year off their energy costs.

However, manufacturing factions and chemical industry officials have said that despite the evident merits of the freeze that nevertheless it should be counterbalanced with tax exemptions on other counts, otherwise the government risks making the countryís industry performance ëuncompetitiveí.

The reality many have argued is that the costs of carbon is now vastly higher in the UK than it is in the rest of Europe, and this has compelled groups such as Tata Steel and Ineos, to ask for reductions in environmental obligations that are costing them over £30 million to subsidise.

Tom Crotty, director of Ineos, previously identified: ìWe are at a crisis point. We will not have an energy intensive sector in this country in 20 yearsí time?.?.?.?You already see chemical companies closing assets, steel companies closing assets.î

However, the government has rejected the industries claims, arguing that it is more important to give British consumers a fair price for their energy and that the initiative is essential for ensuring a sustainable future for the countryís energy production.

The Treasury said: ìEffective carbon pricing, including the carbon price floor, is an important part of the governmentís energy policy. Establishing a minimum carbon price sends an early and credible signal to help drive billions of pounds of investment in low-carbon electricity generation.

ìHowever, ensuring UK industry remains globally competitive is a priority and government acknowledges that rising energy costs is a key issue for many businesses. This is particularly true given the lower than expected European carbon price.